FICO 2008 - Demsityfing the Latest Version of the Famed Credit Score
Written by Mike Killian
Posted On: March 10, 2009
Editor's Note: This article is the second of a two-part interview with Chris Groppa, Account Supervisor for Fleishman-Hillard, Inc. and Ethan Dornhelm, scoring scientist for Fair Isaac.
Mike: How does FICO®08 differ from what has been the case?
Chris: The primary drivers of the FICO® score remain how consistently bills have been paid as agreed, and how responsibly debt has been managed (for example, by keeping credit card balances low relative to credit limits). That said, there are some changes in FICO®08 that could cause consumers to experience a shift in their FICO® scores.
- Missed payments - FICO®08 score will provide greater flexibility regarding missed payments. For borrowers who are in arrears on an account, their FICO®08 score will drop less if the borrower also has a number of other credit accounts in good standing. However, FICO®08 scores could drop farther if the consumers' credit reports show multiple delinquent accounts.
- Isolated delinquencies - FICO®08 score is less likely to penalize a single serious delinquency if it occurred two or more years ago on an otherwise unblemished credit history (no prior or subsequent delinquency). On the other hand, the FICO®08 score will likely drop further if the credit report shows both a serious delinquency and a pattern of multiple prior delinquencies.
- High credit usage - FICO®08 will be more affected by high credit usage. Consumers may receive lower scores if their reported balance on one or more credit card accounts is near the account's limit.
FICO®08 places increased emphasis on demonstrating the ability to successfully handle a variety of types of credit. As such, a consumer who has lengthy experience with a mix of both revolving (credit cards) and installment (auto loan, student loan, etc.) accounts that they have paid on time is likely to be viewed more favorably by FICO®08 than a consumer utilizing only a single type of credit account. In addition, a consumer whose credit report shows that a relatively larger number of open accounts that are being paid as agreed is likely to be viewed more favorably by FICO®08 than a consumer who has very few or no active credit accounts which demonstrate successful repayment history.
Mike: Is FICO®08 in place now and will consumers know which model is used?
Chris: Lenders purchase credit reports through one of the three national credit bureaus: TransUnion, Equifax, and Experian. Fair Isaac is working with the credit reporting agencies to make the FICO®08 score generally available to lenders as soon as possible. As we announced on January 29, 2009, with TransUnion, the score is now available for customer testing. It is scheduled to be available at Equifax in 2Q09. There is no specific timetable for a rollout with Experian but Fair Isaac continues to work with Experian to implement FICO®08 score.
FICO®08 will begin playing a role in consumers' ability to borrow once lenders adopt FICO®08 and begin using this score version to make lending decisions. There is no precise date that lenders will collectively switch to FICO®08; the amount of time that it takes for a lender to test a new score on its portfolio before it is ready to adopt the score varies widely. For some lenders, testing might take a few months, and for other lenders, the process could take more than a year. We certainly are encouraging lenders to migrate to using FICO®08 as soon as possible, and are providing our expertise and support to our clients to facilitate this transition.
Mike: How can people get their credit scores?
Chris: A lot of different credit scores are available online, but only the FICO® score is widely used by lenders. Consumers can get their FICO® scores at www.myFICO.com for $15.95 and also receive expert guidance to help manage credit.
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